BSkyB in surprise ITV move

Satellite TV group BSkyB shocked the media industry by taking an 18% stake worth nearly £1bn in ITV, in what analysts described as a "spoiler" to ITV's potential merger with NTL.

BSkyB announced its move on ITV, which is without a chief executive and the subject of persistent bid speculation, after the markets closed on Friday.

The company, which is 39% owned by Rupert Murdoch's News Corporation, said it made its dramatic swoop without telling ITV's board beforehand. It also ruled out making a full bid for ITV, which would be forbidden under media ownership laws.

Sky said it had acquired 696m shares, representing 17.9% of ITV, paying 135p a share, nearly 20p above ITV's closing price of 115.75p. The group said the £940m purchase would be funded from its existing cash balances and its revolving credit facility.

It is understood that Fidelity, previously ITV's leading shareholder with more than 11%, and US value fund Brandes, with around 8%, were among the sellers.

Sky said it wanted to "explore options to create value in the interests of both BSkyB's and ITV's shareholders". In a statement to the City, the company added: "BSkyB believes that ITV is one of Europe's premier broadcasting and production businesses, and holds substantial potential for long-term value creation.

"This acquisition of shares has taken place without the prior knowledge of the ITV board of directors, but BSkyB has today communicated to ITV's board its intention to be a supportive shareholder.

"BSkyB has no intention of acquiring shares that would result in BSkyB's stake exceeding 19.9% or making an offer for the whole of ITV's remaining share capital."

Under the 2003 Communications Act, BSkyB is prohibited from controlling more than 20% of ITV.

Chief executive James Murdoch said he had spoken to ITV's chairman, Sir Peter Burt, after buying the stake, and insisted his company had made its purchase with ITV's best interests at heart.

He said Sky's move reflected a belief that ITV's decline had been "overstated". He added ITV needed to be "more successful at making and realising value from its programming".

"To accomplish this, the ITV board needs the room to put the best new leadership in place and explore the full range of options to create value," he said in a conference call with analysts.

Asked if Sky's move was aimed at blocking NTL's plans to create a £9bn media giant with ITV, Mr Murdoch was coy. "Clearly the market environment around the company is part of what has created this opportunity for us. We've moved quickly to take advantage of this opportunity and we have pleased right now to be a large investor in ITV. We believe ITV is well positioned given the room and the time to create real long-term value."

Mr Murdoch said the choice of a new chief executive was up to ITV and that Sky would not be seeking representation on the company's board. He said Sky had not been shown the shortlist of candidates to replace Charles Allen, who was forced out in August.

"We've had no conversations whatsoever prior to this transaction with the board and we have no knowledge other than what we read in the papers, which is voluminous, about that prospect. We're absolutely an outsider with no knowledge."

Analysts said Sky clearly saw an NTL-ITV tie-up as a threat. "What Sky fear is a situation where cable wakes up," said one analyst. "Cable has been a dormant competitor for Sky's business for as long as you care to remember. The thing that they fear is NTL using the ITV free-to-air channels to cross promote cable TV. Also, NTL and ITV together would be a more credible bidder for sports rights."

A group of big investors in ITV were approached mid-afternoon and asked if they would sell for 128p. They told Sky to go away and return with a higher offer, pushing the agreed price up to 135p. Sky was trying to get 19% to 20% of the company.

An ITV statement said: "ITV plc notes the acquisition by British Sky Broadcasting of a 17.9% stake in ITV plc. British Sky Broadcasting have confirmed to ITV plc that they have no intention of acquiring shares in ITV resulting in their total stake exceeding 19.9% or of making an offer for the whole of ITV plc's remaining share capital.

"British Sky Broadcasting is constrained under the Communications Act 2003 from holding in excess of 20% of ITV plc.

"British Sky Broadcasting has further confirmed their wish to be a supportive shareholder, working constructively with ITV plc, and exploring options to create value for all shareholders.

"The board of ITV plc looks forward to such discussions with British Sky Broadcasting in due course."

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